Singapore central bank tightens monetary policy in surprise move to cool inflation
- The Monetary Authority of Singapore said the decision would help slow the momentum of inflation and ensure medium-term price stability
- Meanwhile, the city state’s economic activity flatlined in the second quarter compared to the previous three months
The Monetary Authority of Singapore, which uses foreign exchange as its main policy tool, signalled in a statement that it will recentre the midpoint of the policy band up to its prevailing level allowing the local currency to appreciate further against peers, a move aimed at countering imported cost pressures.
Singapore’s currency rose as much as 0.7 per cent against the US dollar, the biggest intraday gain since May. It traded at 1.3959 per dollar as at 8.12am (local time).
“There will be no change to the slope and width of the band,” The MAS said in the statement. “This policy move, building on previous tightening moves, should help slow the momentum of inflation and ensure medium-term price stability.”
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The policy decision, announced soon after data showed economic activity flatlined in the second quarter compared to the previous three months, follows the monetary authority’s preferred core inflation gauge rising to the highest since December 2008. That was driven by gains across food, services, retail goods and energy.
Gross domestic product in the April-June period posted zero growth from the prior three months, according to advance estimates on Thursday from the Ministry of Trade and Industry. Compared to the year ago period, GDP rose 4.8 per cent.
The central bank on Thursday bumped its inflation forecasts, seeing the key core measure it tracks to rise between 3 per cent-4 per cent this year from 2.5 per cent-3.5 per cent seen previously. It expects the all-items measure to surge between 5 per cent-6per cent from the earlier forecast range of 4.5 per cent-5.5per cent.
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The MAS’s core consumer price index – which excludes private transport and accommodation costs – rose to 3.6 per cent last month, with the central bank on Thursday cautioning it expects the pace to stay elevated in the months ahead.
The MAS took steps toward tightening at its scheduled meetings in October and April, as well as a surprise move in January as higher-than-expected consumer prices forced authorities to scrap their forecasts.
The next scheduled MAS monetary policy decision is in October.
